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tv   Tax- Writing Panel Considers IRS Reform  CSPAN  May 23, 2017 7:01pm-8:03pm EDT

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networks. at 8:00 p.m. eastern, testimony from former cia director john brennan on the investigation into possible russian influence in the 2016 elections. on c-span2, the director of the omb, nick mulvaney briefs reporters on president trump's proposed budget for 2018. on c-span three, a house hearing on the border adjustment fax and u.s. economic growth. next, nina olson, the national taxpayer advocate discusses ways the irs is fighting fraud and taxpayer id theft. she also looked at ways to improve irs responsiveness to taxpayer needs. speaking in front of a house ways and means subcommittee, this is an hour. >> subcommittee will come to order. welcome to the ways and means oversight subcommittee hearing on irs reforms, lessons learned from the national taxpayer advocate.
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it's been nearly 20 years since congress seriously considered reforms to the irs. i'm hopeful that we embark on a new effort to improve the agency that can work hand in hand with members on both sides of the aisle. working together i'm confident we can find common ground and make progress. i think it's important to emphasize our effort to reform the irs should not be seen as a punishment or criticism of the average agency or employee. instead, they were recognized that the irs mission is very important. every government entity just whether it's private companies can benefit from a thorough review and some thoughtful long-term planning and action and that's what we are here today for. i have a business background, i started my own businesses many years ago, and my experience tells me that we always need to look for ways to improve, continuous improvement has been part of my philosophy over a lot of years. we always find a way to get better and more efficient. when evaluating any entity
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government business, i always ask myself the reason for improving. the big goal is to have continuous improvement i think as your organization has over the years. the task before us today has asked the tough questions and look for solutions. this work is important because taxpayers need to be able to trust the entity administering the tax code. 98% of our tax revenues come to the irs voluntarily, only 2% is collected through the irs enforcement action. trust is a key component of voluntary compliance. the taxpayer bill of rights contains the right to quality service and i think that's one of our biggest focus. as second on the list, an irs publication describes the right is the right to receive prompt, courteous and professional assistance in taxpayer dealings with the irs. as we consider reforms to the irs we should keep this right in
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mind as well as the other nine. i look forward to working with mr. lewis and other members of the committee to make this a 21st century agency. i want to thank our witness, ms. olson, a champion for taxpayers for many years. and her insight on this topic will be valuable. i look forward to her testimony. i now yield to distinguished ranking member lewis for purposes of an opening statement. >> good morning, mr. chairman. i thank you very much for holding this hearing with the national taxpayer advocate. and i want to thank ms. olson for being here and for her many years of service. i would also like to thank our members for being here. i know for some of us this is a little early. >> i agree.
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>> but we're here. mr. chairman, we must approach the important matter of reforming and improving the internal revenue service with a great deal of care. we must remain focused on doing what is right and what is just for the interests of every american taxpayer. we stay on a bipartisan path together, we help the irs become a model of success for constituent services. the irs is a large and complex organization that has suffered from a lack of resources for many years. congress cut the agency's budget by almost $1 billion since 2010. these cuts hurt and harmed taxpayer services and tax compliance. and the irs need technology, infrastructure, and employees to provide secure, quality customer service. for these reasons, responsible
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reform must include strong, robust funding. as we study the irs structure and service, we must also consider how much the world has changed since congress last acted on this matter. over the last 20 years, small farms and internet access create opportunities for some and barriers for others. both taxpayers and those who serve them struggle with increased identity theft, fraud, and scams. unfortunately, certain program like private debt collection, which has been tried and repeatedly fail just lepd to more confusion. mr. chairman, i believe that we agree on the importance of an agency that will provide taxpayer with greater access to customer service online, over the phone, and in person.
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i believe we can help build a tax administration system that would take advantage of new technology while enhancing the security of taxpayer data. i believe that we must do better and if we work together, we can do better. i look forward to hearing from the national taxpayer advocate today and learning more from her experience with taxpayers and the agency. and, again, thank you mr. chairman for holding this hearing today and thank you for your service. >> thank you, mr. lewis, and i look forward to working with you on the irs reforms. without objections other members opening statements will be made part of the record. today's witness panel includes one expert, nina olson, the national taxpayer advocate for taxpayer advocate services at the irs. i did mention to her earlier i met way group of cpas from florida and your organization was well thought of and also
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last week preparers that are here in washington, i asked them about your organization and they gave you high marks. i don't want to you get a big head, but the point is, we do believe in continuous improvement. ms. olson, we appreciate you being here today. the subcommittee will receive your written statement which will be made part of the formal hearing record. you know have five minutes to deliver your oral remarks. you may begin when you're ready. >> chairman buchanan, ranking member lewis and members of the subcommittee, thank you for inviting me to testify today regarding the operations of the internal revenue service and to offer some suggestions to improve the responsiveness of the agency to u.s. taxpayers. it's been nearly two decades since congress last reviewed and updated the laws governing irs operations. a lot has changed during that time and tax administration would benefit from a fresh review of those laws. in my written statement, i make the following points. first, reforms to irs operations will be most successful if
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congress consults widely on its proposals, engages irs employees and external stakeholders and provides the irs with adequate funding to succeed. second, sound tax administration should be predicated on foundational principles, and the most important principle is respect for taxpayer rights. not only is respecting the rights of the taxpayers who pay our nation's bills the right thing do, but there's significant empirical data that suggests building trust with taxpayers which requires respecting their rights enhances voluntary compliance as well. in 2015, congress codified the provisions of the taxpayer bill of rights as part of a commission providing that the irs ensure irs employees receive training and act in accord with those rights. the challenge now is to ensure that it is not merely aspirational but it incorporated into the very ethos of the irs
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and explicitly into its business practices. i believe a clear statement that taxpayers ally have the ten fundamental tbor rights would provide a stronger foundation for effective tax administration and therefore i recommend that congress enact the taxpayer bill of rights as a free-standing provision in the internal revenue code. third, to become an effective 21st century tax administration, the irs must place greater emphasis on taxpayer service. in my view, there's no conflict whatsoever between providing high-quality taxpayer service and taking actions to ensure tax compliance, particularly on the part of persons actively seeking to evade tax. it should not be an either-or proposition. but to create an environment that encourages taxpayer trust and confidence, the irs must change its culture from one that is enforcement oriented to one
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that is service oriented. of the current approximate budget of, 43% is allocated to enforcement and 4% to outreach and education activities. according to irs data, the agency dedicates only 98 employees to conduct outreach and education to the roughly 62 million small business and self-employed taxpayers, and only 376 employees to conduct outreach and education to the 125 million wage and investment taxpayers. meanwhile, the irs has over 3,000 revenue officers who collect field collection activity and over 8800 agents who conduct field audits. in ra 98, congress directed the irs to serve greater emphasis on serving the public and meeting taxpayer needs.
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it adopted the following mission statement. provide america's taxpayers top quality service by helping them understand and meet their tox responsibilities and by applying the tax law with integrity and fairness to all. in 2009, with no public discussion or notice to congress or to myself, the irs quietly changed its mission statement to read, and enforce the tax law with integrity and fairness to all. this shift in tone and emphasis from applying to enforcing the law suggests irs leadership disagreed way congressional directive and decided to place greater emphasis on enforcement in the mission statement. accordingly, i recommend that congress, i the irs to revise its mission statement to reemphasize a noncoercive approach to tax administration and explicitly affirm the role of taxpayer rights in the guide -- as a guiding principle for tax administration. fourth, congress has passed three important taxpayer rights build including ra 98 and in my
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testimony i highlight provision that irs has enacted that the irs has either not implemented, defined away through guidance or only done a partial job. fifth, ra 98 joint oversight hearings would give congress better insight into the strategic and operational plans, promote dialogue between congress, irs and interested stakeholders, and help ensure the tax ratings and appropriations committee, coordinate their operations. thank you for this opportunity and i look forward to answering any questions. >> thank you very much. at this time we'll now proceed to the question and answer session. i think we're going to have to limit the questioning to four minutes instead of five because we have a briefing at 10:00 so i'd ask all the members to adhere to that. as is my custom, i will hold my question till the end.
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i now recognize the gentleman from arizona for any questions he may have. >> this is unique for a couple of us because we're so used to have witness from the irs where we have a series of dodgy stories and things that are frustrating and when we've reached out to arizona, we had people say nice things about the organization. so a little concern on speed, but actually said nice things. so you win a prize for having a unique conversation with us today. can i start with one thing that did come up in the conversations we had in arizona about this hearing that was coming up, and that was outreach to our office and also to your office of individuals who are called in the gig economy. the uber driver, the person who crowd-sources their work through the internet and the discussion of how they access information saying, hey, here's the rules for me to, say, for my retirement, here's my rules on what must be set aside.
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first, as the advocate, do you believe your organization's doing enough to make it easy to access that information, the way you post it up on your website, the way you deliver that information and then the same thing for as you observe how the irs delivers that information to those folks in that part of our economy? >> well, i'm very concerned about this population as its growing, it's a very fast-growing part of it. and i'm concerned they'll get into trouble with self-employment tax, not save retirement, et cetera. one thing that my office is working on right now that we receive suggestions about from other sectors is to develop a wizard where people who are starting in the gig economy can actually go on to our taxpayer toolkit online and see all the steps that they need to do and get an employer identification number, understand about calculating self-employment tax and when they need to make it, get to the place where they can calculate or learn about the
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different forms of retirement saving, et cetera, and then most importantly if they have problems, how they can resolve them including getting to the taxpayer advocate service. that's something we're developing right now. >> and i know that may be slightly different than as you may have viewed your charter as the advocate, but sometimes the advocate may be proactive. and this is something we all as committee members are going to have to deal with right now is that associated mother organization if they were to give advice saying, you know you can save for your retirement, they may have set them off as being an employee and no longer an independent contractor. and we're going to have to sort of figure out, you know, what are we going to do to help this population be able to have that future. now, on the irs side, do we see the agency itself doing enough? is the public access, because you can't get it from, you know, the organization you're contracted with, where does that
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person go right now to get that information? >> so the irs did create a web page last year to address some of the issues for the gig economy. i think you and i think has always we can all do more. this goes back to the fact that there are only 98 employees conducting outreach and education to the self-employed population in the united states and there are 12 states -- 14 states that do not have one of those employees located in them. >> and i know we're in our last 30 seconds. i have a fixation that the use of technology as a way to direct folks who are having difficulties with the irs. do you actually as the advocate almost publish saying this is a problem that comes to us quite often, here's how it's been resolved. >> right. >> here's the form you need, what are you doing proactive in that part of the world? >> well, we identify the needs of the gig economy as the most serious problem in my annual
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report to congress, and we made recommendations and we have also created materials for my local taxpayer advocates in each state to actually conduct outreach proactively to groups. and that's one of their assignments to identify stakeholders in their community. >> thank you, mr. chairman. yield back. >> i now recognize the distinguished ranking member mr. lewis for any questions he might have. >> thank you, mr. chairman. ms. olson, it's my understanding that you held a dozen public meetings around the country. what do you learn? >> you know, it was remarkable. we learned a number of things. one was how hard people are trying to communicate with the irs and how much they actually want to. we learned that people thought that having digital, online tools would be very, very helpful but they were no replacement for talking to the irs. and that there was a very strong desire for the irs to hear from them and listen to them.
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we learned that from all sorts of different populations a concern about identity theft and the scams that are going on out there, those were very strong issues. we learned about issues about payroll service providers ripping off taxpayers who are securing their services. and then we heard from experts about how best to design digital services to make them useable by people but not replace the communication, the person-to-person communication with us on the phone, or in person. and that was a very strong message. >> i know as the taxpayer advocate you don't believe that quality service can be provided on the cheap? >> i -- taxpayer service is, to me, the key way that you build trust with taxpayers. and you can do taxpayer service whether you're trying to do
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outreach and education or within an audit or within collection activities. if you take that approach that you're trying to bring the taxpayer into voluntary compliance and understand why they're having compliance difficulties and you're listening to the taxpayer, then that is how you bring taxpayer service and taxpayer rights into what i call the ethos of the organization. there's no conflict with exercising the enforcement and compliance tools you have. providing taxpayer service doesn't eliminate a single one of those powers that the irs has when they need to use them. >> do you think in 1998 reform act was successful? >> i think the 1998 reform was very successful. i think that what we need to do is go back and that's partly why i gave you all the list of some of the provisions that i saw that weren't successfully implemented from the irs. i think what congress focused on in '98 was very key, and we need to make sure that the irs does
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what you all directed them to do, or learn why they couldn't do it and then revise it so that it fits into 21st century tax administration. >> did it achieve its goals? >> i think that it achieved -- it made the irs focus on taxpayer service but with these budget cuts it sort of moved away from that as a primary focus and it's really moving away from that person-to-person contact. and i keep saying to people in the irs, people are giving up their money, we are taking their money for the greater good. why would we not want to talk to them and hear from them and listen to their concerns. even if we have to tell them we can't solve your problem in the way you want, this is the law, by listening to them we gain trust. and that's what we need to do and we've gotten away from that. >> again, thank you for being here and thank you for your years of service.
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>> i now recognize the gentle lady from indiana. >> thank you mr. chairman. again, many thanks from the folks in the indiana district. you've helped in the five years i've been here you've been able to mitigate and help somewhere over 90% of the questions we've had and i'm very, very greatful for you for what you've done. you've probably seen everything in 16 years. i wanted to pick up on what you said that you learned from the hearings that you guys had on the issues of i.d. theft, tax fraud and scams. that's what we get burdened by, folks folks in our district that have gotten dmaut these issue. on this return review program, the rrp that started in 2009, this thing has tended to end up to be like a boone dog, i wanted to hear from you on it on its successor, the electron anybody fraud system which in 2010 the irs said the was too risky to maintain, upgrade or operate beyond 2015 but here we are in 2017, the efds is still the principal fraud detection system because the rrp isn't ready for prime time. they said there's no estimated
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date for full implementation and jao estimates that the program has incurred over $86.5 million in cost overruns. so when the rrp has run as a pilot, it yielded a high false positive right and missed $313 in fraudulent filings. so let's set aside the numbers and stats and talk about the people behind them. you've documented well what taxpayers go through in your annual reports, but for the benefit of everyone here, you can walk us through what happens to a single mom, a small business owner are a person who either gets flagged as a false positive or fraudulent return? you can just go through how they find out what hoops they go through and what this really means to people? >> right. depending on what system triggers them as a suspected fraudulent return, they either get a letter or their refund is just held up and they have to call the irs. if they get a letter, they're
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told they have to verify themselves either online or go into a walk-in site. they're no longer walk-in sites. they have to make an appointment. sometimes you're told it might take weeks to get an appointment and you won't be able to get your refund before you do that. and then even you go through that, it may be that your return is stopped by some other filter once it goes back into the processing so then you to go through it all again. identity theft and refund fraud have been the top two case receipts in taxpayer advocate service for the past five years and they are a significant part of our inventory. it's devastating to people. >> and so aside from the time element and the frustration, does it not cost taxpayers as well money if they need to seek professional services to be their advocate? >> absolutely. and this affects people who are low income, high income, it doesn't matter. and people are having to get their preparers to call and people often submit documentation multiple times. there is no one person assigned
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to their case so every time they call they have to tell their story to a different person. these are all recommendations we've made. you know, the other thing on the filters is that we have recommended that the irs create sort of a dedicated team during the filing season on the i.t. side so as we start seeing filters that have very high false positive rates that you have a team that can get in there and adjust those filters, don't wait until later. >> i can -- i apologize to interrupt, but what about commercially available technology that's there? is it your opinion from a common sense perspective this would be where we would move to with an unbelievable amount of errors and fraud and money being spent and this whole lack of accountability on the system, would you not agree that that would be something we could look at and say let's mitigate this as fast as we can on behalf of the taxpayers? >> certainly the private sector has tried to figure out about electronic fraud and the irs is
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meeting with those people, the commissioners established the security summit and i think that's a significant step. >> i appreciate it and we're out of time pit yield back and thanks again. thanks, mr. chairman. >> i now recognize the gentle lady from washington, ms. d enche delbene. >> thank you, mr. chair and thank you ms. olson for being with us today and for all of your service. i wanted to talk to you about technology in particular because you talked so much about that in your testimony and kind of the dire state that its in right now. you can give us a brief overview of how technology decisions are made at the irs today and kind of briefly whether you think the organizational chart is working well in terms of helping make those decisions? >> well, i think right -- there are lots of executive steering committees on the technology side that review the priorities of how the irs is going to spend its money. and the irs in addition to the cybersecurity concerns that we have, which are very great. the major concern that we've got in addition to the rrp system,
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which is our return fraud detection system, is our enterprise case management system. we have over 60 systems and they don't communicate with one another and so employees have to get permission to get into things and often they can't. it slows things down, it's manual, it's not virtual. our case files aren't virtual. it's astonishing. and that is a heavy lift that the irs, in my opinion, is very far behind on but is finally beginning, after spending millions of dollars, to get up to speed. and then we have the fact that we're still on -- we have the two oldest information systems in the federal government, according to gao where we're keeping our taxpayer information on. and that's a significant concern, getting from those systems to something that's 21st
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century is going to be a huge lift. >> and i assume when we talk about cyber having old system that's very concerning and it's concerning because access to information is so cumbersome, as you said, it slows down your ability to, you know, irs's ability do its job. >> right. >> why do you think things have gotten so bad? why are we so outdated? >> i -- my personal opinion from observing it while i've tried to develop my own case management system from my own employees is that partly we don't have the talent inside the irs. we haven't been able to recruit the people that we need to. and then i think that there's not enough communication between the i.t. function and the business operating divisions who are going to use these systems so that things go -- get developed that actually aren't what the operating divisions need. but then the operating divisions don't have a chance to tell that and then money gets wasted.
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and i've seen that a lot. >> you know, i think that's a common problem that we've seen in technology implementations in government generally and something we need to continue to focus on. do you have current modernization plans within the irs that you think are going to help address these issues? >> i think particularly for the ecm the irs just put out a request for information to hear from off-the-shelf products that are doing a case management system to see what is out there. and then they will build to a request for proposal. i think that is the appropriate approach to really get a sense of the universe instead of focusing on one thing that turns out not to be good but we've invested $80 million in it or something like that. so then finally on the right track in that regard. they do need more funding to be able to bring in the talent, but
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they also need more oversight from you all so that you all are understanding that that funding is being spent appropriately. >> thank you so much. my time's expired i yield back, mr. chair. >> thank you. i know recognize the gentleman from pennsylvania, mr. meehan. >> thank you mr. chairman and thank you ms. olson for your work. ms. olson, oftentimes the irs has a direct relationship with taxpayers because it relates to the taxpayer paying their taxes, but they serve another role. and it implicates a lot of people in which the information that one puts into their irs tax return is relevant for another purpose. and i speak to something which is touching families all across america today and that is college applications, including for financial aid. and so as colleges and universities interact with their students, they're reliant on the ability for the applicants to let people know what their
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financial status is, and that means they need to get into irs databases. outward facing tools have been used by the irs so that i authenticate who i am and then you allow me to go back into my tax return and forward that information on to my financial aid application. as a parent who's gone through this process, and i know i am speaking for many, it is so incredibly frustrating to begin with. but now we're seeing that this system which has purportedly been put in place, the outward facing tools has been compromised. hundreds of thousands of americans trying to make this application have found that their identities have been stolen. as a result now we can't only not utilize the tool, but have you people who are trying to make those applications who are
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now frustrated fielding time deadlines for applying to their schools, don't know where to go to get the information and it's particularly egregious because often times the very people making these applications they may not -- it may be a student that doesn't know the information that their parents have. you can speak to me about the outward facing tools that the irs is using, what you know about this situation, and what they're doing to make that taxpayer relationship move more slowly -- flow more appropriately? >> first, the information the irs has is such a valuable asset of the federal government and the taxpayers of the united states that we have to make sure that it is protected in every way possible. and that means that there has to be very high -- high-level screens for people to authenticate who they are because identity thieves are very sophisticated. and last year the irs learned that there were risks to the way that people were getting access to irs data through this fafsa
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system. and while they tried to work with the department of education over time, they learned what the irs needed for the pro section of that data the department of education couldn't put into their system. and they had to make -- they gave several workarounds and those workarounds weren't able to be implemented by the doe. >> was the problem on the department of education part? >> it was my understanding it was on the level of -- you know, the types of systems that doe has. and we were setting very high standards for access to that information. and so the irs had to really felt, according to their risk analysis that they had to stand down. and now they've just put it back up again, they've worked through some issues. but i think that it's going -- this is where you have some difficulty where you have one agency and another agency and you need to get them together. >> what's your sense? is the department of education collaborating and cooperating with the irs? >> i think they are now and this
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is my personal opinion, i think they are now. i think it is a matter of technology. but it is also that i think they didn't understand initially the level of concern that we have about people getting access to this incredibly important data. and misusing it. >> well, thank you. i would ask for your continuing oversight on that particular issue because, as we speak, millions of americans are dealing with this very frustrating system. thank you, i yield back. >> certainly. >> i know recognize the gentleman from connecticut, mr. larson. >> thank you, mr. chairman. i especially appreciate the opportunity to audit the committee. i want to thank you and mr. lewis for this opportunity. ms. olson, i have nothing but respect and admiration for the job that you've done.
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representative courtney and myself have been dealing with an issue along with representative neil up in new england that deals with foundation crumbling. not dissimilar to a case that happened many years ago in the south with what they referred to as chinese drywall. in both cases, the circumstances are that through no fault of the individual, they all of the sudden find themselves in a situation in the case of connecticut where their foundations are crumbling, there's no insurance coverage. and so we're pursuing relief in this case from the irs to use this as a casualty loss. and, as i said, there's ample precedent for this in the china drywall situation. and our initial discussions with both the commissioner and secretary mnuchin have been very positive.
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but -- and we also know that in connecticut the taxpayer association has been incredibly supportive. any advice or recommendations then could we besiege you for support of the national taxpayer association? >> well, i've been aware of this problem and had my staff attorneys meet with chief counsel attorneys of the irs to look at the law pertaining to casually casualty loss deductions and how it could apply to this instance. and just this week we submitted to the irs chief counsel a request for priority guidance that they put this issue on their priority guidance plan to give guidance. and actually it wasn't a request, we pointed out how they could do it so grant relief to these taxpayers. and i'll be more than happy to share that -- that request with you so you can see what we wrote up.
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>> i would be delighted to receive that. we appreciate your continued advocacy. as i said earlier, this is something that impacts people, and now it's estimated that more than 30,000 people in connecticut will be impacted by this. but the strain actually runs from canada all the way down to the sound, so we're trying to forewarn people as well with this. but i can't thank you enough as well as both the cooperation that we've received today from the irs and treasury. and i view that in large part because of your involvement and the taxpayer association involvement. >> thank you. >> with that, mr. chairman -- ask you at some point, not for here, but i'd love to get your opinion on the japanese system of collecting and simplifying their tax code and what opinions you might have on that. that's not a question for here,
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but perhaps later i could talk with you on that. >> certainly. >> with that, i thank the committee for indulging me and yield back my time. >> anytime, mr. larson. i now recognize the gentleman from north carolina, mr. holding. >> thank you, mr. chairman. ms. olson, i'd like to ask you about a subject that came up at one of your forms last year. a taxpayer raised concerns in iowa raised concerns for statistical audits being done for research. and although you acknowledged the importance of these, you also recognize that they can be painful for taxpayers and you even describe the taxpayer under audit is, quote, a guinea pig. so i have significant concerns about these audits. you mentioned a couple of potential solutions at the forum last year and at the time you said you had only been discussing these options internally. so has your thinking evolved any
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on these suggestions? >> so, you know, the audit -- as a representative i represented taxpayers for 27 years, and as a representative i had to sit through the predecessor to these audits, the tax compliance measurement program. and it was expensive and painful for the taxpayer, painful for the representative. and but i also recognize the importance of these audits so that we don't go out and willy-nilly audit people that shouldn't be audited. we need some kind of statistical gathering thing. and my thinking about these taxpayers being guinea pigs is they are actually doing a service for the public. threes are random audits, there may be nothing wrong with their returns at the end of the day but the irs is using it for data gathering. if they're doing that public service, they should be paid. and either that, or either/and maybe we don't assess the tax at the end of the audit. you know were we found the errors, but they've sat through this for the public good and so
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maybe we don't assess the tax that we found, or we give them compensation for sitting through it. and i would suggest that that computation be nontaxable. so we don't, you know, insult them. >> let me ask you this. yesterday gao released a report on the national research program and employment taxes and the gao concluded that irs doesn't even have a formal plan that timely analyze, let alone actually use, the data it collected. so do you believe the irs should continue to subject taxpayers, in your words, guinea pigs to these burdensome, random audits if there's no plan to use the information, and shouldn't the irs actually use the data? if it's going to pay folks for the data, your suggestion, shouldn't they tuesday or shouldn't they just shut down the program?
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>> i don't think they should. >> that's kind of doubling disturbing. >> i don't think they should shut down the program. they need to use the data. and i will look very carefully at the gao audit because i think gao that gives a plan for how the irs could use it. i think the irs needs to be an organization that uses the data that it has and often it doesn't develop strategies or it takes a long time and that's just inexcusable. >> listening to your answer on ms. delbennie's question on technology in the irs, it seems the irs has difficulty with technology in its basic functions and this is something above its basic function and that makes it perhaps triply disturbing now that ms. delbene asked the probing question. >> i think that the irs is challenged in a lot of ways. i do believe that -- >> that's the understatement of the day.
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>> yes. >> mr. chairman, i yield back. >> thank you. i now recognize the gentleman from new york, mr. crowley. >> thank you, mr. chairman. thank you for holding this hearing today. thank you, mrs. olson for participating here as well. ms. olson, recently my good friend and colleague john lewis introduced a bill, the taxpayer protection act of the 2017 which i'm a co-sponsor of to repeal the private debt collection program. do you think the irs should outsource federal tax collection and should a new irs have the authority do this, hire private companies to collect unpaid taxes? >> well, it is my personal and professional opinion that the collection of tax is an inherently governmental function because it requires the exercise of judgment and discretion to do it right. and take into consideration the facts and circumstances of taxpayers. but congress has made -- congress has made the decision
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to create this outreach, and now my focus has been on how the irs is implementing this provision. and i have a lot of concerns about how it's being implemented. >> for a for-profit motive, is that right? >> i think that's part of the fundamental flaw of the program. i think irs collection employees flrs that the goal of collection is to bring taxpayers into voluntary compliance and that may mean that you're focussing on the future, that they be able to pay going forward and we'll deal with their debt later. and the private debt collectors have the incentive to collect tax, just the amount that's before them and get their commission. they have no incentive to think about voluntary compliance going forward. >> the consequence as it pertains to the taxpayer as well. >> yeah. >> kind of a -- in my mind, my concern about criminal justice reform and privatizing of
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prisons. you create beds. they need to fill them, that's how they get paid. in terms of the eitc, i know there's been a great deal of concern about fraud existing within the program itself. i'd like to get your thoughts in terms of how much is really fraud and how much is basically mistakes that are made in terms of finding -- filling out the proper requisite papers. >> well -- >> hank paulson, for instance, when he was at goldman sachs he filed and did it wrong just to demonstrate even the most brilliant, so to speak, can make mistakes. what do you have to make it even more efficient and more accessible but more efficient as well? >> this year in my report to congress i made a legislative recommendation that was designed around trying to minimize the errors and fraud in the eitc. and we've attached it to my testimony. i do think that most of the errors are attributable to the
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complexity of the law, but the complexity of the law also creates opportunities for others to game it. and a lot of the fraud, the pure fraud comes from some unregulated preparers that, you know, are preying upon an unsophisticated population and selling them something that's too good to be true. so you've got a lot different things playing around there, but i believe that there are things that you can do both administratively and legislatively to minimize the improper payments. some of that is going to the design and others is going into the kind of both outreach and education and oversight that the irs needs to do on this issue. >> i think for the integrity of the program itself we need to be vigilant and mindful but also understand the complexities in terms of the clientele. >> yeah. >> and they're ability to fill out those forms properly. and, mr. chairman, let me thank you for holding this hearing today as well in a very bipartisan spirit. mr. roscoe and i have been
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working on issues in relation to taxpayers relationship with the irs. we know it's not always plez and the, we know you all don't always get it right, and that's why i think we need a congress, a vigilant congress, mr. chairman, and a committee like this to keep an eye on it to help you do your job, help us do our job, but help most importantly protect the interests of our constituents, the u.s. taxpayer. thank you mr. chairman. >> thank you. >> now i recognize the gentle lady from tennessee, ms. black. >> i thank you for allowing me to sit in on the committee although i'm not a member of the committee. but ms. olson i want to thank you for the work that you and your folks do in your agency. as you said at the beginning of your comments that most people do want to pay their fair share and just to be left alone. they understand that they have a responsibility to pay their taxes. the u.s. has about 98% of voluntarily -- voluntary tax compliance rate and has always been perceived to be fair and impartial. but in the most recent years we have seen more of that
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impartiality and i think that that's part of what we're seeing in the general population that they've really lost the trust in the irs. so you're agency is particularly important for helping us to be sure that we do at least have one reach into helping with that. one of the things that i wanted to go to is, of course, the cox complexity of the tax code doesn't help and that's up to congress to reform the tax code so that it can be something much simpler, which we are working on on our side. but the irs is also a unique creature in that it doesn't really have a regulatory process like other agencies, federal agencies do. and so they issue these guidances, and they don't solicit any public comments like you would in a federal agency where there would be a change and there would be an opportunity for those public comments. and, in fact, on the irs website, it actually has a section that says, understanding
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the irs guidance, and it has seven kinds of guidance to taxpayers that they should be familiar with. and i'll note the irony of this is that the irs actually acknowledges within that statement that they say, and i quote, it may be puzzling and a mystery. and so i wanted to ask you to talk a little bit about those guidances and what we can do to keep that from happening and how that actually rolls out and takes place. >> the irs has many different types of guidances you point out, and some of them do go through the administrative procedure act in the regulations that we do. but it believes that getting out guidance is helpful to taxpayers and so rather than going through what it views as the cumbersome regulatory process which would require notice and comment, it does stuff to get out guidance
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faster. the downside about that is, as you say, there's no vehicle that they've designed for public comment on that. that doesn't mean you couldn't do it that way, but they don't. and i am very concerned about that. i am even more concerned, and i've written about this as a most serious problem, that they are moving more toward faqs. you know, which are great in the sense that you get things up quickly, but you can't tell when a change has been made in the faq unless you print out the faq every single day and track it word for word. and they're not reliable, so that if you say you rely on an faq and then the irs says, well, that's wrong, that's no defense. so and as that gets done more, you're really leaving the taxpayer in a vulnerable situation. >> and i want to reference that. that is one of the things that i here from my constituents is they call in to get the guidance and they get the guidance and they ask can you please send me an e-mail or something to -- that i can use to verify if i use what you're recommendations
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are. and the irs will refuse to send them anything in writing. and this, to me, is a big problem where people are trying so hard to do it the right way and then they get called on it and they say, but i call in and i ask a question and what they got was, we cannot give you that in writing. >> right. >> so i see this as a big area that has to be looked at, and i appreciate you being here today. and thank you again. >> i'm very happy to work with you on that. >> thank you. >> i know recognize the gentleman from michigan, mr. bishop. >> good morning. thank you. thank you, mr. chair, for the hearing today. i'm looking at the irs is responsible for processing approximately 150 million tax returns every year issue being refunds to taxpayers to about 70% of those 150 million tax returns. according to the irs estimates, it says that the cost for refund
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check is about a dollar. and i'm wondering what the cost would be for a direct deposit for -- instead of a check and also how we might address that issue, the cost and the time using prepaid debt cards and whether or not the irs uses for the tax returns the debt express cards. >> you know, this is something we identified in my annual report this year, is that it's so much and it's so less expensive do direct deposit. and then we have a large part of our population that's unbanked, and so rather than them going in through check cashing places, et cetera, if they're already participants in this direct express program that's run by treasury, why couldn't we put tax refunds on it. frankly i'm baffled why we don't do it. the treasury can negotiate very good rates at charges, they
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already have this product, and it just makes sense. so i really don't have a good answer for you. that's why we made it a most serious problem, why aren't we using it. >> so doesn't it april us wide open for fraud if we don't utilize this system? >> well, i think the certain about the fraud is -- is obviated by the fact that people have to good to a bank to prove their identity so you have all the patriot act requirements that were put in about proving your identity to open a bank account, and that's what they have to do for direct express. it's actually much more than what they would have to do to just get a card from some check cashing zblas that's assuming that could you use that product for the refund. >> right. >> but we now use prepaid debt cards that don't have go through that process. >> exactly. >> so that is what i'm talking about. >> right. >> so we expose our self to fraud whereas we utilize the direct express debt card we wouldn't have that problem.
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>> exact. >> i has there been any discussion about allowing taxpayers to use prepaid debt cards for tax payments? >> for payments? >> yes. >> i think that they can, actually, if they haven't then the irs is working on that to accept that online. they're really trying to work on the different ways that you can make electronic payments online directly. part of the problem, though, is they now have on their online account you can make those payments, but you do have to be able to sign on as a taxpayer. and some of the security is very, very high for that. >> what's the cost to process a check interest a taxpayer? >> you would set a dloor -- i don't have that information right here but i can get you it between the check versus direct deposit verse a debit card. >> we can agree it would probably -- >> significantly, less. yeah. >> thank you very much. mr. chairman, i yield back. >> thank you. >> thank you. ms. olson, i want to thank you
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up front for your leadership and service forever a lot of years. like i said i heard a lot of good things but i've got a litany things i wanted to run down and touch on. we've kwot a few minutes. identity theft, that's been huge in florida, cpa sz coming to me, i think the cpa had maybe his identity stolen but it's big and i got to tell you this is more maybe fwro or three years ago, it seems like it's a little better today, but i'd like to get your take on where are we at with the identity theft? >> i think it's going better than it has been, the irs has impruftd ii improved its processes but three things have happened that made a difference. one is the legislation that you passed getting us the w-2 information by january 31st, because that lets us be -- if we can get the employer w-2s, we can see which is the legitimate w-2 versus the altered fake w-2.
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the other thing that's happening is that the irs is now on its -- you know, requiring the software companies to ask for driver's license when they're filing electronic returns, and that really helps us identify whether this is this is a legitimate taxpayer or identity thief in many cases. and there's a program we're trying to get more and more employers to use where there's a code that is unique to that taxpayer's w-2 from that employer and when they go to file electronically, if that code is put in, then we can tell that this is the correct w-2 and it's not an identity theft w-2. >> let me ask you just for the sake of time, you know, how much of this -- the criminals or the sin de indicates are outside the u.s. someone claims that a lot of this is done -- >> i really don't know. the criminal investigation is working with so many other
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enforcement agencies to really monitor that and it's so hard to track this stuff down. >> would you say there's a bunch in the states but you also hear it's outside the country. >> you hear about elsewhere, yeah. >> eastern bloc countries or something like that. mr. crowley brought up earned income tax credit, 24% fraud, tens of billions of dollars i guess a year. what's your take on that. why is it we can't seem to improve it somewhat? is it lack of resources to educate people? i'm sure that's part of it. he asked how much that was a part of it, but i was curious just from your standpoint, where are we at on that? >> i don't think there's any one thing we can do to bring that rate down. i think it's a suchl multiple things. it's education, it's doing really specific audits on it. it's doing other kinds of compliance activities, and it is doing a redesign of the
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provisions knowing what we know about where the errors and fraud are, we can change the design a little bit legislatively. >> does it make sense to have higher standards for preparers, do you think? a lot of people that are doing a lot of this work, would that make a difference, education, training, maybe some licensing? >> i do think that there have to be minimum competency standards for preparers particularly in the ietc area, because that's where we see -- we know that the unregulated, unaffiliated prepare iers not with the large preparation firms are the greatest source of errors or the eipc in the database. >> you were here 20 years ago when they did irs, were you here then when they did the irs reforms? >> i was actually a witness before this committee as the representative of a low-income taxpayer clinic. >> okay. and your thought, it seemed like that made a big difference, i thought i heard you say that your testimony. so in terms of where we're at
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today, it sure seems like 20 years we could work together on a bipartisan basis to make some real reforms that make a big difference to the country. do you agree with that? >> yes. i think the way it was done in '98 where you heard from a diverse group of people internal and external, excerpts in government, experts in business, it made an incredible record and when you read those hearings again they're very impressive. >> we want to work with you get all the stakeholders have have multiple hearings we're going down the road to see if we can't make a difference in that space. one of the things that's come up in our area is small business disputes. they seem like it's usually sometimes not a lot of money but it's a dispute but they could end up spending more on professional fees and outsiders than just paying the check itself. where are we at on that or what's your sense of that? >> you know, i think that that raises the issue of not just the
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audit side whether these disputes, but the appeals function. and that, again, is one of my concerns that the irs has moved to a more centralized, remote, and personal appeals function which really was the safety valve for small businesses. there are 12 states that don't have an appeals officer in them, so they don't understand the conditions of that state. and i think that it really takes -- we should take a look that the appeals function and see how we really make it work as the safety valve that it was intended to be. >> and then my last question is just protecting taxpayers's rights as a key foundation, what additional tools could you use to make it even more effective on behalf of taxpayers. >> yeah. i think -- i've written about this in my annual report. i've made recommendations about cod fying, strengthening the
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taxpayer assistance authority and coda phiing the taxpayer directivy order the irs to change its processes that would affect groups of taxpayers. and those are very important tools, but right now they're just -- the taxpayer advocate directive is just administrative. >> thank you. i'd like to thank our witness for appearing brus today. please be advised members have two weeks to submit wrirn questions to answer later in writing. those questions and your arnss will be made part of the formal hearing record with the with that the subcommittee stands adjourned. >> thank you, mr. chairman. >> thank you. [ indisstin indistinct conversa
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c-span, where history unfolds daily. in 1979, c-span was created as a public service by america's cable television companies and is brought to you today by your cable or satellite provider. earlier today, the house ways and means committee held a meeting on the border adjustment tax and u.s. economic grej. committee he members discussed recommendations from various groups as they move forward with the trump administration's efforts to overhaul the tax code. this is 3.5 hours. the committee will come to order. welcome to the ways and means committee hearing on increasing u.s. competitiveness and preventing american jobs from moving overseas. before we get started, i want to take a moment to speak about the evil terror attack that occurred last night in the united kingdom. our deepest condole


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